Op-Ed: How Two Ballot Initiatives Could Affect Colorado Business

Oil and gas setback and just compensation measures

By John L. Watson

Published: 2018.09.30 09:58 AM

Voters in Colorado will continue to be inundated with the pros and cons of measures on the Nov. 6 ballot, but Amendment 74 and Proposition 112 may be worth some serious attention Jobs, health, safety and constitutional rights to just compensation will all be explored.

Proponents of Proposition 112 seek to increase safety and quality of life by limiting oil and gas operations through “setback” regulations, which would create a buffer between occupied buildings and other vulnerable areas. Amendment 74 comes as a response, seeking to protect landowners from the possible loss of property value the setback requirements might induce.

These two initiatives are directly related to any combination of ballot issues that could pass or fail, potentially having dramatic effects on the Colorado economy.

PROPOSITION 112 — THE OIL + GAS SETBACK MEASURE

This measure would add a new section to the Colorado Revised Statutes. Proposition 112 requires that new oil and gas development projects, including fracking, be a minimum distance of 2,500 feet from occupied buildings and other areas designated as vulnerable.

This compares to current regulatory restrictions established by the Colorado Oil and Gas Conservation Commission (COGCC) that mandate wells must be 1,000 feet from high-occupancy buildings such as schools and hospitals, 500 feet from occupied buildings such as homes, and 350 feet from outdoor areas like playgrounds.

The most significant potential impact to new oil and gas development stems from the reference in Proposition 112 to “vulnerable” areas which are defined as “playgrounds, permanent sports fields, amphitheaters, public parks, public open space, public and community drinking water sources, irrigation canals, reservoirs, lakes, rivers, perennial or intermittent streams, and creeks, and any additional vulnerable areas designated by the state or a local government.”

The setback requirements would not apply to any oil and gas development on the 36 percent of property in Colorado designated as federal lands. Rather, the setback requirements would apply to any new oil and gas development permitted on or after the effective date of the measure on any non-federal lands in the state. In addition, reentering old oil and gas wells that were abandoned would be considered new development under the measure, and the setback requirements would still apply.

Anticipating that Proposition 112 might make it to the ballot, the COGCC released a study July 2 of the prospective impact of the initiative. Some of the major findings in the report include:

An estimated 54 percent of Colorado’s total land surface would be unavailable for new oil and gas development by adopting the buffer zone setbacks and federal land exemption proposed by Proposition 112. Of the non-federal land in Colorado, 85 percent would be inaccessible using these same criteria.

“Vulnerable areas,” buffers which Proposition 112 defines to include a range of surface hydrologic features, would have a significantly larger impact than “occupied structure” buffers on making surface lands inaccessible to new oil and gas activity.

In addition, according to a study conducted by the Colorado Association of REALTORS®, the Colorado Bankers Association, Colorado Concern, Common Sense Policy Roundtable and Denver South Economic Development Partnership, Proposition 112 would have far-reaching, negative effects on Colorado. The study found:

Proposition 112 would kill up to 147,800 good-paying jobs in Colorado by 2030, with up to 43,000 jobs being lost in the first year alone.

From 2019 to 2030 more than $9 billion in state and local tax revenue would be lost, with that amounting to a loss of more than $1 billion annually by 2030.

AMENDMENT 74 — THE JUST COMPENSATION MEASURE

The Just Compensation measure, known as Amendment 74, was submitted as a response to the proposed setback requirements for new oil and gas development.

It would require property owners be compensated for any reduction in fair market property value caused by “government law or regulation.” Specifically, the measure would amend Section 15 of Article II of the state constitution. Nothing would be stricken from the current language in Section 15, but the following underlined text would be added:

“Private property shall not be taken or damaged, or reduced in fair market value by government law or regulation for public or private use, without just compensation.”

The question of who would pay for the “just compensation” claims depends on the circumstances, according to Chad Vorthmann, executive director of the Colorado Farm Bureau and one of the primary sponsors of Amendment 74. In an interview with Colorado Public Radio (CPR), he indicated local zoning rules would put the burden on the city or county, while Proposition 112 and the proposed setback could put the state on the hook for losses in property value based on a lack of access for developers to oil and gas deposits.

“These measures are about protecting Colorado's farmers and ranchers from extremist attempts to enforce random setback requirements for oil and natural gas development,” Vorthmann told CPR. “While these setbacks may on their face sound reasonable, they would essentially eliminate oil and natural gas development in Colorado and strip away Colorado landowners' right to use their land the way they wish. This is about protecting the Colorado way of life. Because taking private property is not the Colorado way.”

Without the changes contemplated by Amendment 74, a person or entity can receive compensation from a direct government action only if they prove that a government action deprives them of nearly all of their property. Thus, there is no question that the proposed constitutional change focusing on any “government law or regulation” (state or local) and its impact on a property’s “reduced fair market value” would significantly expand the circumstances which could trigger the requirement that state or local government pay “just compensation.”

The Colorado Municipal League opposes Amendment 74, saying the change “would expose both the state and all local governments to untold legal exposure with unclear language referring to government regulations or actions which would ‘reduce’ the ‘fair market value’ of private property and subject taxpayers to ‘just compensation’ to a private property owner.”

Fort Collins mayor Wade Troxell said that all types of ordinances and policies at the municipal level would be affected, like code enforcement, land use and zoning, licensing, and redevelopment. He has indicated this could make the state and taxpayers subject to frivolous lawsuits with developers potentially encouraged to engage in litigation.

Proposition 112 could negatively affect property owners and businesses in the oil and gas industry by limiting land available for development., Amendment 74, on the other hand, could be viewed in one of two ways. It could either protect those property owners and businesses from a potential loss of value if Proposition 112 passes, or, because it is so broadly written it could impose a significant potential cost on both businesses and individual taxpayers who would ultimately bear the cost of paying just compensation for reduced property value based on “any government law or regulation.”

John L. Watson is an experienced trial lawyer at Spencer Fane, having successfully represented clients in state and federal courts. As both a defense trial attorney and counselor, Watson represents clients in a variety of complex commercial cases, including breach of contract actions, real estate and land development, special district litigation, construction disputes, securities litigation, public land and natural resources law, mining, oil and gas, wildlife, toxic tort, Superfund, and air, water and waste environmental cases. He advises landowners, as well as facility owners and operators on increasingly complex federal, state and local environmental, health and safety, and land use regulations and ordinances